Strategic Advisor to the Chief Executive Officer, Fastenal Co
Fastenal CEO Daniel Florness Talks US Manufacturing | Bloomberg Talks
Fastenal CEO Dan Florness speaks on market conditions for industrials and manufacturing in the US with Bloomberg's Tim Stenovec and Norah Mulunda.
See omnystudio.com/listener (https://omnystudio.com/listener) for privacy information.
Bloomberg Talks curates top interviews from around Bloomberg News. Hear conversations with the biggest names in finance, politics and entertainment. On Bloomberg Talks, we round up interviews with Fortune 500 CEOs, government officials, well-known investors and business leaders.
Listen to more Bloomberg Talks: • Bloomberg Talks (Audio)
Subscribe to Bloom...
About Daniel Florness
During Fastenal's Q2 2026 earnings call on July 15, 2026, Daniel Florness, the company's CEO, discussed the company's performance and priorities. He stated that he "would have felt a hell of a lot better about the quarter if our incremental margin would have been 24%," noting a challenging gross margin trend. Florness said he told Jeff Watts, the president and chief sales officer, that when a trend is favorable, one should "convince everybody to do the things necessary to keep that trend going." He also described his philosophy as including "love growth" and "incrementals matter," adding that "every problem can be addressed in a simpler way if you're growing." Florness acknowledged that the company paid bonuses tied to growth, which contributed to margin pressure, and he emphasized the need to balance growth with incremental margins to maintain organizational discipline.
Transcript (29 segments)
I
Interviewer0:08
Fastenal shares rising as much as 6.4% earlier in the session. They're up right now 3.4%. It's a new all-time high for the company after they reported net sales for the second quarter. That came in in line with estimates from analysts, up 8.6% over the same period last year. This is a $52 billion market cap company. They distribute construction and industrial supplies. Think nuts, bolts, screws, anchors, rivets, and other fasteners, as well as industrial, janitorial, and safety supplies, cutting tools as well. The company sells to builders, manufacturers, governments, and more. So really, it's a great read on the entire industrial and manufacturing economy, specifically here in the US. We've got with us the CEO of Fastenal, Daniel Florness. He joins us from Winona, Minnesota. Dan, welcome to Bloomberg Businessweek Daily. Shares up today. Shares up more than 25% so far this year. New all-time high. In the earnings release though, you said that quote, 'The market conditions remain sluggish.' What conditions specifically?
D
Daniel Florness1:09
You know, we sell to a wide range of customers and industries as you mentioned across North America and in 26 countries in total, but mostly in North America. Our customer base has been relatively subdued for the last several years. In the fall of 2022, we saw some indicators saying it was going to slide and we felt that as we moved into the second and third quarters of 2023, and it's been really weak since then. About 30% of our business is very production centered business within manufacturing.
I
Interviewer1:45
So are there any signs that that part of the business is improving, that those customers are seeing sentiment improve? Are you hearing anything from them?
D
Daniel Florness1:55
I think the biggest sign that we're seeing is the knife has stopped dropping. You know, we were trying to catch that falling knife for a two-year period. When I talk to our district and regional leadership throughout the world, the feedback I hear is, you know, they're not talking about this $200,000 a month customer whose business is off 60, 70%. You have much more stability. Now, it might be stable at a lower level than it would have been two years ago, but it's much more stable and so it allows our inherent growth to shine through.
I
Interviewer2:29
So we've really been in this prolonged downturn especially in the industrial economy. Are you seeing any particular green shoots or signs of inflection, and if so which markets are you most optimistic about?
D
Daniel Florness2:43
Yeah, so we're seeing some green shoots for us. We're seeing some impact in energy. However, I would say that's probably more us taking market share than it is a lift in the tide. About 25% of our business is outside of the industrial, and within there, we're doing quite well. I hear a lot of commentary from our folks with data center builds, even warehousing customers, and we've made really good inroads over the last three years into the government sector, and that primarily was an offshoot of COVID. During COVID when supply chains blew apart, we stepped in to serve a lot of that market when they were not being served, and those folks have remembered that and we've grown our business there.
I
Interviewer3:39
So, we need to of course talk about tariffs. How have tariffs really changed your thinking about product sourcing, particularly for fasteners which we know of course are primarily sourced in China, Asia. What other options are you evaluating to mitigate the tariff impact here?
D
Daniel Florness3:54
You know, so back in 2018, we did some short-term moves of our supply chain, but it was fairly limited because you just can't change. There's so much QC involved with vetting out cut suppliers that you couldn't move it fast enough. What we had done quietly over the last five, six years is continue in that progress because the tariffs that were put in place in 2018 were sticking and we expected more of it to happen and we wanted to better diversify the supply chain for our customer. We did look at a lot of options. There aren't a lot of options within North America. We looked at some options of doing some manufacturing ourselves. The problem is the economics still didn't work. So it was really for us more about diversifying supplier base in general.
I
Interviewer4:46
Are the economics of that going to work now in this new tariff regime? I think during the first Trump administration the goal was to move things out of China. But as many companies are learning right now, it doesn't matter if it's China, Vietnam, or India. If it's not in the United States, there is going to be a tariff on it. At least that's what it seems like is going to be the case.
D
Daniel Florness5:04
Yeah, the economics still do not work. And part of the challenge there isn't just the economics, it's the amount of time. When we were researching it very in depth two and a half years ago, one of the challenges is it's easy to find a site. It's relatively easy to get a building up and get a supply chain set up. When I say relatively easy, I mean time frame of what it takes to do it. The most challenging aspect was the production equipment, how many months it would take to get that. And so that aspect really pushed us to look more at geographic dispersion of supply chain sourcing because the economics are still very challenging.
I
Interviewer5:52
So how much of what you sell right now is actually made in the US?
D
Daniel Florness5:59
If I look across what we're sourcing, what our suppliers are sourcing, we've always estimated less than 50% is coming from the US.
I
Interviewer6:11
And is that going to stay stable in this new tariff regime?
D
Daniel Florness6:15
I suspect it will.
I
Interviewer6:17
Okay. So, I know Fastenal raised prices back in April, especially as a result of tariffs. Historically, I mean, the company has been able to pass on pricing costs. What's really been the feedback here from customers? Has there been much pushback in terms of the ability and appetite for customers, frankly, to take on additional pricing, especially as we head into the second half of the year?
D
Daniel Florness6:38
First off, we sell into a very competitive market. There is always push back. The real challenge in the equation is communication. And one thing that helps in our supply chain, we're directly sourcing from the manufacturer that's producing the product more so than most of our competitors in the marketplace just because of our scale. And so we have the ability to see into the future farther than a lot of our competitors, and it puts us in a position to communicate very well. It puts us in a position to take steps as the inventory is turning. The one unfortunate part of that is it also can create fatigue for your customer, and I would say our customer is at the fatigue point right now. It has become challenging, but it always is and it's all about communication and trust.
I
Interviewer7:35
We're speaking with Fastenal CEO Dan Florness. Company reported earnings earlier. Shares are higher, reached a new record today. Shares up right now by about 3.7%. I want to talk a little bit about the One Big Beautiful Bill Act that became law on the 4th of July this year. In the press release for your earnings, you did mention it, but big picture, what does it mean for your customers and for your business?
D
Daniel Florness7:59
You know, big picture what it means for our customers is if you look at some of the depreciation rules and the timing, it makes it very advantageous to make capital investment. And so that's the biggest piece that we see impacting our customers because our customers, especially on the manufacturing side, have an incredible amount of infrastructure that they're investing in. And so anything that allows them to depreciate faster and to improve their return profile is advantageous for our marketplace. And that's a key element that we talked about in the release.
I
Interviewer8:36
I know that you talked a little bit about US manufacturing your own products in the US and your suppliers doing it, but I'm wondering about your customers and the way that these so-called America first policies might help them reshore manufacturing back to the US. Are you seeing any evidence or hearing discussion of your customers beginning to move manufacturing back to the US?
D
Daniel Florness8:57
You know, I would say it's fairly limited, but again, that's not something that happens in six months. We've had some customers set up assembly operations which you can do in a much shorter time frame as opposed to pure production where you're manufacturing components yourself or you're changing your supply chain to more domestic type supply. But what we've seen is a lot more willingness of making investment even beyond the manufacturing capacity in the short term.
I
Interviewer9:35
Fastenal has refocused on growing with larger customers. What are the key drivers there and what additional investments do you need to make to enable growth with those customers?
D
Daniel Florness9:45
Yeah. So a position we've put ourselves in for a number of years is we aggressively made investments, and this was starting back 15 plus years ago, of slowly building an infrastructure to move the supply chain closer and closer to the point of use. And what that involved for us is investing in a tremendous amount of vending infrastructure and in more recent years a lot more RFID type infrastructure to measure product movement within a facility so that you don't have to, with human capital, physically observe product being diminished. You can monitor it electronically and remotely. And so we've made extremely large investments over the last 10 plus years in vending technology, and I'm pleased to say that vending technology is all manufactured in the United States.
I
Interviewer10:41
Yeah, I was surprised when I went to your website earlier today as I was preparing for this to see those vending machines. It's not something that I've run into in certainly in my life, but it's pretty cool to see that. Not just soda.
D
Daniel Florness10:52
It's a snack machine.
I
Interviewer10:53
Yeah, that's what I was thinking. It's like it's a snack machine, but you can't eat what's in there.
D
Daniel Florness10:58
Exactly.
I
Interviewer10:59
Okay. Hey, we just got about a minute left and I just want to talk numbers real quick. Gross profit up to 45.3%, up from 45.1% over the second quarter of last year. You said it was partially offset by higher import duty costs and higher fleet and transport costs. Are those costs in your view going to stabilize?
D
Daniel Florness11:19
They're going to continue to rise because of the way our supply chain works. We carry a fair amount of inventory because we have such dispersion in our locations. So we carry quite a few months of inventory. So that's going to keep ratcheting up as we're on a FIFO basis inventory. So as that inventory continues to turn, that will continue to ratchet up a little bit as we move into the third and fourth quarters and into 2026. What really helped us during the quarter and what drove the improvement in our gross margin, set aside tariffs for a second, we put in place a faster expansion starting last summer to widen our inventory and that's really what drove our margin this quarter.
I
Interviewer12:03
Dan Florness, CEO of Fastenal, really appreciate you joining us. Shares up today, new all-time highs, 3.8% right now.